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Dow Ends Higher as Banks Eke Out Gains

Major U.S. indexes ended a choppy session higher, helped by a late rally in banks and better-than-expected results from Hewlett-Packard.

The Dow Jones Industrial Average rose nearly 70 points, or 0.6 percent, to close at 11417.43. The S&P 500 also gained 0.6 percent, while the Nasdaq added 0.2 percent.

Crude oil rose 45 cents to settle at $114.98 a barrelon the New York Mercantile Exchange, after the EIA reported crude supplies rose by 9.39 million barrels, well above the 800,000 build expected. The gasoline supply, meanwhile, dropped 6.2 million barrels.

Goldman Sachs stood by its forecast that oil will reach $149 a barrel by year end.

The dollar snapped a two-day losing streakand resumed its march towards its 2008 peak against a basket of other currencies, helped by concerns about deteriorating economic conditions outside the U.S.

Shares of Freddie Mac and Fannie Mae to tumbled to their lowest closes in more 17 years amid speculation that the firms may indeed require a government bailout. Freddie lost 22 percent, while Fannie skidded 27 percent. It was the second time this week -- and fourth time this year -- that Fannie and Freddie shares have fallen more than 20 percent in a day.

Pimco's Bill Gross said the Treasury may have to pony up as much as $40 billionto recapitalize the mortgage giants.

Freddie executives were expected to meet with Treasury officials today, the Wall Street Journal reported. A Treasury spokeswoman said the Treasury is in regular contact with executives from both Fannie and Freddie but wouldn't confirm the rumored meeting with Freddie executives.

The news didn't bleed over into the broader financial sector. In fact, banks and brokerages finished up nearly 2 percent.

"Either [Fannie and Freddie] are getting so small that no one cares or people have decided they’re going under, who cares," said Jim Paulsen, a strategist at Wells Capital Management in Minneapolis. Plus, there is an element of relief that a resolution is growing more imminent and that "if we just resolve this thing, it won’t be a problem," Paulsen said.

Paulsen made two keen observations about the market: First, there wasn't a lot of volume on this late-summer day, so you can't make too much of dramatic moves. Second, in weeks like this where we don't have a lot of economic data, the market reverts to its worst nightmares. Then the data come out, they're not horrible, and everything gets better again.

Stay tuned for next week!

Lehman Brothers found itself in hot pursuit once again. Yesterday, the IMF's chief economist, Kenneth Rogoff, said a large U.S. bank will fail in the next few months. Today, Ron Ianieri, chief option strategist at the Options University, told CNBC that Lehman is the most likely to fail.

Lehman is said to be mulling a sale of its entire investment-management unitas the fate of CEO Dick Fuld -- and the entire firm -- hangs in the balance. CNBC's Jim Cramer came out swinging at Fuldon Tuesday, saying selling the unit is a bad idea and that Fuld needs to wake up and make a move to save the firm before it's too late.

Lehman shares finished up 5.1 percent at $13.73 on the New York Stock Exchange.

Goldman Sachs slashed its earnings outlooks for five major banks, saying "Tides are not changing; more writedowns and asset sales to come." The banks were Citigroup, JPMorgan Chase, Morgan Stanley, Merrill Lynch and Lehman Brothers.

Does Goldman know something you don't?

In other news, the SEC plans to propose a new short-selling rule in the next few weeks which would be broader than an emergency order covering just 19 financial stocks which ended last week, Reuters reported.

(Are tighter rules on shorts the answer? Click on the video at left.)

Hewlett-Packard jumped 5.7 percent, making it the top gainer on the Dow, after the tech leader beat analyst estimates for the fiscal third quarterl, helped by strong international sales of laptops and printers. The company also issued a fourth-quarter estimate that surpassed the consensus forecast.

Analysts said it was a good report but remained concerned about the impact of a stronger dollar on HP's outlook. In the last quarter, 70 percent of HP's revenue came from overseas.

Bank of America , JPMorgan, AIG and GM rounded out the top five gainers on the Dow.

Among other notable tech advancers, Research In Motion advanced 3.4 percent after Citigroup analyst Jim Suva gave a thumbs up to the company's new BlackBerry Bold, backing his "buy" rating and $160 price target on the stock.

Shares of Take-Two Interactive advanced 5.5 percent and Electronic Arts rose 1.4 percent after the FTC cleared Electronic Arts' hostile $2 billion bid for Take-Two.

On the earnings front, BJ's Wholesale beat expectations by a pennyas shoppers headed to the discount warehouse for food and fuel. However, revenue fell short of estimates and the warehouse operator said sales of nongrocery items will likely remain flat in the near term.

STILL TO COME:

THURSDAY: Jobless claims; leading indicators; Philly Fed survey; GM announces investment plans for Ohio plant; Earnings from Gamestop, Heinz, Hormel, Aeropostale, Gap and Intuit
FRIDAY: Fed conference in Jackson Hole begins; Earnings from WPP, AnnTaylor

WATCHERS: Obama is expected to select a running mate this week ahead of the convention

Send comments to cindy.perman@nbcuni.com.